Consider an economy populated by Farmer Freddy, Baker Betty, and a bunch of cons
ID: 1214485 • Letter: C
Question
Consider an economy populated by Farmer Freddy, Baker Betty, and a bunch of consumers. Farmer Freddy and Baker Betty each own their respective businesses, so they keep all of their own profits. Farmer Freddy hires labor and grows 100,000 bushels of wheat. He sells 60,000 of those bushels to Betty for $5 per bushel and exports 40,000 bushels abroad at $5 per bushel. Freddy pays $400, 000 in wages to the consumers. Baker Betty hires labor and uses the wheat she purchased to produce 300,000 loaves of bread, which she sells to the consumers at $2 each. Betty pays $250, 000 in wages to the consumers. In addition to buying Betty’s bread, the consumers import $50, 000 worth of peanut butter and jelly from abroad, which they use to make sandwiches, of course.
a. (1 pt) Calculate gross domestic product for this economy using the production (value added) approach.
b. (1 pt) Calculate gross domestic product for this economy using the expenditure approach.
c. (1 pt) Calculate gross domestic product for this economy using the income approach
Explanation / Answer
Given,
Farmer freddy = 100000 wheat
Total selling price = 60000x5=300000
Export = 40000x5=200000
TR= 500000
wages= 400000
Farmer Betty=
produce 300000 loaves
sp= 600000
wages= 250000
Import= 50000
a) GDP= 300000+60000 +150000 ( net export ) + 50000= 1100000
b) GDP( expenditure)= 400000+250000+300000+ 200000 -150000 = 1100000
c) GDP (income)= 400000+250000+500000+ 50000 +1150000 - 50000= 1100000